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Are Weak Banks Leading Credit Booms? Evidence from Emerging Europe

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  • Natalia T Tamirisa

    (International Monetary Fund, 700 19th Street, NW, Washington, DC 20431, USA)

  • Deniz O Igan

    (International Monetary Fund, 700 19th Street, NW, Washington, DC 20431, USA)

Abstract

This paper examines the behaviour of weak banks during episodes of brisk loan growth, using bank-level data for central and Eastern Europe and controlling for the feedback effect of credit growth on bank soundness. No evidence is found that rapid loan expansion has weakened banks during the last decade, but over time weak banks seem to have started to expand at least as fast as, and in some markets faster than, sound banks. These findings suggest that during credit booms supervisors need to carefully monitor the soundness of rapidly expanding banks and stand ready to take action to limit the expansion of weak banks. Comparative Economic Studies (2008) 50, 599–619. doi:10.1057/ces.2008.35

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Article provided by Palgrave Macmillan in its journal Comparative Economic Studies.

Volume (Year): 50 (2008)
Issue (Month): 4 (December)
Pages: 599-619

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Handle: RePEc:pal:compes:v:50:y:2008:i:4:p:599-619

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Cited by:
  1. Pavla VODOVÁ, 2013. "Liquidity Ratios of Polish Commercial Banks," European Financial and Accounting Journal, University of Economics, Prague, University of Economics, Prague, vol. 2013(3).
  2. Pomfret, Richard, 2010. "The financial sector and the future of capitalism," Economic Systems, Elsevier, Elsevier, vol. 34(1), pages 22-37, March.
  3. Csaba, László, 2009. "A szovjetológiától az új intézményi közgazdaságtanig - töprengések két évtized távlatából
    [From Sovietology to the new institutional economics - meditations from a distance of two de
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 749-768.

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